When an employee works more than a certain number of hours a day or week, he typically receives extra pay called "overtime." He also may receive extra pay when he works on a holiday or under unusual conditions. When an employee earns more than his usual pay rate, he receives coefficient pay.

About Coefficient Pay

The term "coefficient pay" typically refers to wages received in excess of the employee's usual pay. To calculate coefficient pay for a given employee, an employer determines the amount that an employee would have made at his usual pay rate for the extra or holiday hours. The employer then multiplies this number by a predetermined coefficient. Employers may use accounting software to calculate coefficient pay.

Example

Assume an employee earns an hourly wage of $8 and works a total of 37 hours during the week, 10 of which were worked on a holiday. Also, assume that the employer compensates the employee at 2 times his hourly wage for holiday hours. The employer must calculate coefficient pay using a coefficient of 2. The calculation is as follows: (10 hours x $8) x 2 = $160. In this example, the employee earned $160 of coefficient pay. He also earned $216 of regular pay [(37 hours - 10 hours) x $8 = $216].

Salary and Commissions

Calculating coefficient pay becomes more difficult when an employee doesn't earn an hourly wage. To calculate coefficient pay for an employee who earns commission or salary, you must first determine the employee's hourly rate for the week in which he earned coefficient pay. Next, multiply the week's hourly rate by the number of hours requiring extra compensation. Finally, multiply the result by the appropriate coefficient.

Coefficient Tables

Some businesses use coefficient tables to calculate coefficient pay for workers who earn commissions or salaries. These tables list coefficients that employers can use to determine a worker's coefficient pay without performing all of the calculations by hand. To use a coefficient table, the employer must determine the salary or commission earned during the week requiring coefficient pay and multiply it by the appropriate coefficient from the table. To determine the appropriate coefficient, the employer must locate the table entry that corresponds to the employee's extra hours and total commission or salary for the period.